How About A Risk Management Approach To Patent Litigation?

Someone emailed me an interesting Avvo question yesterday from a company that has been sued for patent infringement. From the post:

The plaintiff is represented by a high profile law firm and they have a history of just suing everyone to get unfair licensing fees and prevent competition.

Offhand, I’m not sure if the author is referring to the law firm, or the plaintiff having a “history.” In addition, the plaintiff may or may not be the stereotypical “non-practicing” patent owner since these types of patent assertions facilitate, rather than prevent, competition. On the other hand, just about everyone falls into this trap about patent owners and competition, so the author here may simply be equally clueless.

Question is: Can I find an attorney to represent us for $7500 monthly for the first 12 months and then go to a higher amount thereafter? Unfortunately we cannot afford anything higher than this. Our goal is not much to even beat the patent infringement as much as it is to pro-long it for as long as possible before we’d have to sign a licensing agreement. Currently the licensing agreement is not fair so we’d have to play tough in order to get a fair agreement.

Notice how the decision to settle the case has already been made, but this company wants to spend $90,000 to delay settling the case for 12 months, which might actually be a good deal for the company (assuming they would be so lucky). If the patent owner is looking for anything in the seven-figure range, the interest alone over a 12 month delay could justify the $90,000 cost. However, this assumes the company can get the same (or better) deal from the plaintiff on day 1 as they could on day 365.

From the patent owner’s perspective, the best deal you can offer comes before litigation begins. Filing a lawsuit carries both fixed and variable costs on top of the built-in costs of any licensing program, and the longer litigation drags on–the more expensive it becomes to the patent owner–the more the patent owner seeks to justify the original investment.

Defensive bargaining position rarely improves with passage of time alone. However, new facts or key rulings can tip the scales. For example, it’s not enough to develop a claim construction argument. A well-prepared patent owner can easily anticipate negative counter-arguments and has already factored those in to the ask. However, if you’re fortunate enough to win on a key issue, the calculus changes. Unfortunately for this particular company, however, I can’t think of a single reputable law firm that will litigate a case through claim construction for only $90,000. Moreover, if you go the cheap route, litigate a claim construction and lose, the day 1 ask will be long gone.

Some defendants think a good prior art search will improve your position, and sometimes they’re right. Rumor has it that Gellyfish is dropping its case against some 40-odd companies because of a strong reference uncovered by the defense. In other cases, however, if a patent owner doubts the strength of your invalidity argument, you’ll have to present your case to the court (or the patent office) and take your chances.

Again, if delay is your only goal, and the difference between an early and late settlement is nominal, the cost of defense might pay for itself, if you can keep it low. But patent litigation can also be an expensive game of “chicken.” If the patent owner gets the idea that your company is less committed to going to trial than they are, just watch the ask skyrocket as the trial date approaches.

In summary, consider your objectives, and try to anticipate your opponent’s objectives. If it’s all about money, and you’ve made the decision to pay up and settle the case, the solution is easy, relatively speaking. Considering the total cost of settling now vs settling later, along with the cost associated with proceeding on the likely winnable issues, and the overall effect a win would have on the “ask”, it’s a matter of simple mathematics to figure out whether the delay will be beneficial to your company, or simply make your lawyers richer.